A rendering of Springfield Town Center's interior when it is complete

SPRINGFIELD, VA—Vornado Realty Trust has entered into an agreement with Pennsylvania REIT to sell Springfield Town Center for $465 million in a cash-and-stock transaction that was negotiated off market. The 1.35-million-square foot retail center is currently closed, except for the Macy’s, Target and JCPenney anchors, as it undergoes an extensive renovation.

The center will be trading hands when the rebuilding is complete in the fourth quarter of this year. PREIT is paying $340 million in cash and $125 million of PREIT operating partnership units under the deal, which has been structured as a tax-free exchange. The closing will be no later than March 31, 2015. By that point it is hoped that 75% of the 703,000 square feet of non-anchor space will have been leased and Dick’s Sporting Goods and Regal Cinema will have opened.

PREIT and Vornado will jointly lease the property through closing.

Vornado will record a non-cash impairment loss of approximately $20 million in the first quarter of 2014. However the REIT will also be entitled to additional money, equal to 50% of the value over the initial consideration calculated three years after closing using a 5.5% cap rate. At this point, the project is expected to have been stabilized.

PREIT also becomes entitled to develop land surrounding the retail center under existing zoning regulations, which permits the construction of an additional three million square feet of retail, residential, office and hotel space.

The non-anchor space is currently 30% leased to such retailers as Michael Kors, H&M, Chico’s, Pandora, Francesca’s Collection, Maggiano’s Little Italy, Yard House Restaurant, Wood Ranch BBQ, LA Fitness, Regal Cinema, Dick’s Sporting Goods and the Mid-Atlantic region’s only Topshop.

Meanwhile there are more than 175,000 square feet of leases are currently being negotiated.

BofA Merrill Lynch and Wachtell, Lipton, Rosen & Katz acted in advisory roles to PREIT on this transaction.